How blockchain is simplifying the US mortgage market

The US mortgage market is a messy tangle of paper documents that cost about $50bn (£41bn, €47bn) to process each year. Blockchains are great at cutting through the Gordian Knot of paper-based verifications and intermediaries. This use case is addressed by Harmony, the latest application to come of out Factom, which specialises in providing a data layer for the blockchain by which users can manage data.

Factom Harmony provides a single permanent document catalogue that eases the pain and cost of audits, file reviews, lost documents, post-closing and litigation.

Jason Nadeau, executive vice president Factom, has 25 years' experience in the US mortgage market. He said: "Harmony is very specifically designed for the US mortgage market - although it certainly could be used in other mortgage markets. What it does is allows the user of the application to manage all of the documents associated with the mortgage transaction all the way from the beginning when a customer first applies for a loan, through into the secondary market in the securitisation and the Wall Street aspects of it."

He explained Harmony's workflow technology allows big mortgage players like Bank of America or Wells Fargo to streamline their existing imaging or document management tools. The average mortgage has close to 1000 pages of paper signed and associated with it.

Harmony takes on that load right after the loan is completed when everybody signs everything and the asset is created. "We can take every one of those documents and the associated digital proofs and put them permanently and transparently on a blockchain.

"So at any point in time going forward, whether it's for an audit, whether it's for a foreclosure, whether it's because there is a lawsuit, if the consumer just wants to be able to see exactly what was going on with their loan - everything is transparently provided through the Harmony system on the blockchain.

"For really the first time in our industry you have an independent third party, if you will, in the blockchain itself. It verifies the documents are correct and they are the actual documents, as opposed to what we saw over the past decade with lost documents, forged documents, incorrect documents; the industry was very poorly structured around the way it managed documents," said Nadeau.

And it is not just put on one blockchain, but in fact three: a private Factom chain and two public chains, Bitcoin and Ethereum. 'Fingerprints' of 100 documents and metadata for a loan are stored on Factom blockchain, then every 10 minutes a snapshot of Factom's blockchain database is taken and this is also hashed and stored on Ethereum and Bitcoin.

"Harmony is set up so lenders, agencies and so on can run their own Factom nodes and they can all be proofing one another's work. But then you still have an industry checking itself. The really nice thing about our model is we distribute our ledger into distributed ledgers and can prove any time with public witness. So you get best of both worlds; you get to keep data private, and also have a public blockchain witness," he said.

No big lenders have been announced yet, but Nadeau added: "Suffice to say the reaction we have been receiving from the pre-launch sales and activities has been very strong."

Some people from the world of enterprise smart contracts have talked about getting some big lenders on board to automate the whole painful process of issuing a mortgage on a blockchain. Was this something Nadeau was thinking about?

"Not in the short term," he said. "Unlike other financial instruments, like a credit card or a car loan, the US mortgage market has many hands in the pie. Even if Bank of America and Wells Fargo said they were going to do everything electronically, to do a single mortgage they have to interact with something like 30 different suppliers and a lot of these suppliers are very small, sometimes one-person entrepreneur companies."

Nathan Wosnack, founder, Ubitquity said the first property in Canada on the blockchain was handled by his parallel record-keeping platform (private alpha v1.1).

He said in an email: "The recorded property is a residential address in Vancouver, British Columbia. While we understand this isn't legally recognised, it is the first step towards that as we continue to build relationships with industry players, and align our efforts with partners like Blockchain@UBC, MIT CRE, along with Title and Local Municipalities in the US and worldwide.

"The first recorded property ownership transfer on the [Bitcoin] blockchain was June 2016 in Norfolk, Virginia, USA by Ubiquity partner and realtor Marina Reznik, also via Ubitquity."